February is the shortest month of the
year, but it finds us trying to accomplish a staggering array of objectives. We
completed an expedited application for PEER certification at the behest of the
Kentucky Energy and Environment Cabinet (we are waiting to hear on that
application’s success), we completed the promised analysis of all of our retail
rates (you’ll see all of that at the meeting), and we worked with TVA to get
approval for the promised $5 customer charge reduction for the residential
customers. That is a lot for one month, especially February!

We will welcome D.T. Froedge to the
board this month. I will be prepared to do another rate design review, if
anyone wants to hear it again. If not, we will jump straight into the many
slides it is going to take to display the findings of our 2016 and 2017 rate
effectiveness reviews. When this is done, and when you deal with our
recommendations for the $5 customer charge reduction, our list of promises to
the Advisory Council and the Glasgow City Council will be complete.

The meeting might be a bit long, depending
on the level of questions that you have about my rate presentation, so try to
grab a snack before you arrive. Now, let’s move on to this month’s agenda!

March 1 FCA

As we continue the third year of our new retail rate designs, March 1
will bring us a large increase in overall power cost due to an increase in the
FCA. The FCA calculation always trails actual TVA fuel expenditures by a couple
of months, so March will see us all paying for the extra fuel TVA had to
purchase to cover the demands of the extremely cold weather. The March 2018 FCA
is going to increase to 2.175 cents per kWh, and that increase, when blended
with our other wholesale costs, will bring about a roughly 4% increase in
overall energy costs to us and our customers. As usual, I am attaching the narrative
on the FCA from the TVA portal. On March 1, the energy component of our retail
rates will be adjusted to reflect this decrease to the wholesale cost of
energy.

Since we recorded that meeting and gave D.T. access to the
recording, you all may feel it unnecessary to spend time on that material
again. I am fine with that, but I will be prepared to delve back into the
subject if anyone thinks it worthwhile.

Retail Rate
Effectiveness

At the meeting we will
present our findings on the effectiveness of our electric power retail rates
for the last year. It is very clear that this sort of review needs to be
conducted annually. We found some issues that have now existed for two years,
simply because we didn’t get the chance to conduct the review after 2016 ended.
We were consumed with the attacks on us, and the need to defend ourselves,
during much of 2017, and that relegated the rate review to a lower priority. To
complicate matters more, the board acted to create and offer an optional rate
which created a new volumetric variable into the equation. As a result, two
years elapsed before we got to accomplish the review.

It is not fair to ask
board members to become rate design experts, so the presentations we will have
at the meeting will not be highly technical. Rather, we will use graphics to
illustrate the bottom line findings relative to each of our retail rates. This
will still take a considerable number of slides, because we have six retail
rates (not counting the outdoor lighting tariff) to review.

I will not be asking
you to take action on curing the deficiencies we found in the analysis, yet. We
still need to understand what the Kentucky Legislature’s pension reform
decisions will do to our need for revenue, along with TVA’s decision on
wholesale rates to become effective in October. Action on updating the rates in
a way that will produce more revenue will have to come later in the year, when
more of the variables are known. However, I do want you to see the kind of
changes that will be necessary later in the year as you approach the decision
that will be in front of you at the meeting – dealing with the last element of
our agreement with the Advisory Council and the City Council – that of reducing
the residential customer charge by $5. It is clear that you need to weigh these
issues together so that everyone understands the likely flow of rate changes
which will occur in 2018 if we are to meet our promises and respond to our
fiscal realities.

The $5
Customer Charge Reduction

Last month we thoroughly discussed the tough question of where to collect
the revenue necessary to provide the $5 per month customer charge reduction benefit
promised in our agreement with the City Council. This month I will present an
actual tariff, approved by TVA, to accomplish the directive you gave me at the
January meeting.

After considering all of the options, you directed me to create, and seek
TVA approval, for a tariff change to our RS and TRS rates, that would collect
the revenue necessary to fund the reduction, from the same class of customers
that will get the benefit. The vehicle we have chosen to accomplish that task
is to increase the kWh adder for delivery by an amount sufficient to collect $5
more through the kWh charge from the average consumer in the RS and TRS
residential rate customers. Copies of the first pages of the proposed tariff
sheets, showing the proposed changes, are included at the end of this
narrative.

The good things about this solution are that it collects the revenue from
the same class that enjoys the benefit, so no cross-class subsidy is required,
and very low kWh usage customers will pay in less than $5 but still get the
full $5 reduction in customer charge.

The unattractive elements of this solution include the fact that this
move adds even more volumetric risk to our rates (the very thing we recognized
as a danger and took steps to eliminate) and, for customers who use higher
levels of kWh, they will pay more in additional kWh cost than the $5 customer
charge reduction that they will receive.

These good and bad elements of this decision seem to be necessary for us
to finally accomplish each of the elements of the agreements we reached last
year. We will discuss the details of this at the meeting, but if you implement
the recommendation, everything is in place to effectuate this change on April
1.

To meet the new Kentucky law regarding municipal utilities, I will need to
deliver a written report on the rate change to the City on the day after our
meeting. Further, I will need to appear at the next meeting of the Glasgow City
Council to give a verbal report on the rate change, although the council will
not have the power to approve or disapprove of the change.

Reports

The Finance Committee of the City of Glasgow asked us to solicit
proposals, using our usual RFP process, for an independent audit of Glasgow EPB
for the next three fiscal years. We issued the RFP and got proposals from
Alexander, Thompson, Arnold and from Carr, Riggs & Ingram. We forwarded
those proposals to Brad Groce, the committee chair, and are awaiting their
decision on the chosen firm.

Conclusion

Well, that ought to be
more than enough to set your head to spinning for this month. Let me know if
you have any questions before the meeting.

E.P.B. Electric Customers on the Variable Price Rate- We predict the POSSIBILITY for February's peak electric demand to occur on Friday, February 2nd between 7am & 1pm. This is only a prediction based upon our best guess as to what the combination of all customers in Glasgow will demand from T.V.A. A peak demand hour can occur during any of the maximum of 24 hours of each month during one of our predicted peaks. This is our forecast which is provided as a convenience for E.P.B. customers who wish to receive forecasts. If you want to move to a fixed energy rate without coincident peak demand charges, please contact us at 270-651-8341.